Philippine banks have problems of mounting bad debts, poor credit decision mechanism and low capital bases. There is improvement in return on assets but not in recovery of NPAs. While banks have been consolidating, there is still scope for further consolidation. A large number of small banks are posing supervisory challenges to the regulators. The banking system has taken up reforms earnestly but the implementation appears to be slow. The central bank encourages mergers and consolidation through tax sops and concessions, but the government is not in a position to recapitalize weak banks. Instead, it is inviting private equity participation in asset management companies with promises of tax and fee exemptions.
Philippines has not been very adversely affected by the Asian financial crisis of 1997. Alberto Reyes, Deputy Governor, Central Bank of Philippines, attributes this to the country's sound macroeconomic fundamentals and the financial reforms implemented before the Asian crisis. In his opinion, in the early nineties, measures were being persued to encourage competition and strengthen supervisory and regulatory systems. A new and more independent central bank was created in 1993. Entry norms for new banks have been liberalized. entry of foreign banks was also eased in the year 1994, which resulted in the establishment of 10 new foreign banks, branches by 1995. Reyes concludes that Philippine banks entered the crisis phase in a relatively well-capitalized and robust condition.
Post Asian Crisis, the reforms process has been continued. These reforms relate to areas like higher minimum capital, stricter entry and expansion norms, sound corporate governance, connected lending, corporate debt restructuring, vigorous NPA norms and other prudential norms with regard to provisioning, disclosure standards etc.
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